Tax Plaza
The Tax system explained!
Taxes and Bankruptcy The Nuts and Bolts
The filing and subsequent discharge of either a Chapter 7 or a Chapter 13 bankruptcy may eliminate some types of personal income tax liability. There are, however, certain restrictions which must be met in order to completely eliminate personal income tax liability through bankruptcy.
Some personal income taxes may be eliminated through the filing and subsequent discharge of a Chapter 7 bankruptcy. The following requirements must be met for the personal income tax liability to be eliminated in a Chapter 7 bankruptcy:
The tax return must have been filed on time
The filing should not be fraudulent
The tax return must have been filed over three years ago as of the bankruptcy filing date (e.g. IRS debts for the last three years generally, would not be dischargeable)
Alternatively, in some cases, if the tax return was filed late, was not fraudulent and was filed over two years ago as of the date of the bankruptcy filing, the tax debt may be deemed dischargeable. For example, if you filed your 1986 tax returns in 1990, and in 1994 filed a Chapter 7 Bankruptcy, this tax debt would be dischargeable as long as it was not related to a fraudulent filing and the tax debt was assessed by the IRS over 240 days before the bankruptcy filing.
Even if all of the above requirements are met, personal income taxes can still sometimes be non-dischargeable in a Chapter 7 bankruptcy. This occurs when the IRS has placed a tax lien on the debtor's property. In this case, the tax liability must be paid in full, but the IRS may be forced to accept a payment plan or substantially eliminate penalties through the filing of a Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, the debtor makes payments to a bankruptcy trustee and the bankruptcy trustee in turn distributes a percentage of the payment to the creditors. A Chapter 13 plan is filed with the court which determines the amount distributed to each creditor by the trustee. A bankruptcy judge can force the IRS to accept extended payments on personal income tax liability through a Chapter 13 plan.
This type of bankruptcy works well when the IRS has a tax lien on personal property and the debtor has enough income to pay back the IRS over a three to five year period. Tax penalties may be discharged in a Chapter 13 bankruptcy because they are lumped in with all the other unsecured creditors of the debtor, such as credit cards. These are generally only paid back through the bankruptcy at 10% or ten cents on the dollar.
Filing either a Chapter 7 or a Chapter 13 bankruptcy may be a useful tool for debtors to eliminate tax liability.
Richard K. Gustafson, II is a partner with Legal Helpers and specializes in consumer bankruptcy law.
www.legalhelpers.com, the law firm of Macey & Aleman, is one of the nation's largest consumer bankruptcy firms. Founded in 1994, Legal Helpers have helped over 75,000 clients eliminate over $500,000,000.00 in debt. Legal Helpers can be contacted by phone, 888-743-5787 or by email, info@LegalHelpers.com.
Taxation in the News
When taxes attack: Can your business handle tax prep, or is it time to outsource?
The company is being sued by the state for failing to pay unemployment insurance taxes, or is being audited for failure to remit sales taxes or payroll taxes. 'A mistake we see with the sales tax is the business collects the money but it never gets
Big medical bills may add up to qualified tax breaks
(Detroit news photo illustration / Photos from isto) Taxpayers swamped by big medical bills in 2011 can get some relief when they file income tax forms this spring thanks to an overlooked deduction that is hard to reach in a typical year. The IRS lets
Feds targeting tax return fraud
Maybe you had a lapse of memory but most likely you have become the latest victim of tax fraud. The Internal Revenue Service and the Justice Department have been cracking down on suspected identity theft perpetrators to curb the growing issue of refund
China bars airlines from EU tax plan
Chinese airlines had previously said they would not pay the EU carbon tax, but the formal prohibition by the State Council, or cabinet, pits Beijing in direct opposition to Brussels. The announcement, published on Monday by Xinhua, the official news
Tax tips for February
Folks who have been victims of tax identity theft should have gotten a special Identity Protection PIN (personal identification number) by now, according to David Mellem, an enrolled agent in Green Bay, Wis. Julianne Breitbeil, an IRS spokeswoman,
EU Transactions Tax Will Hit Hardest in London, ITEM Club Says
6 (Bloomberg) -- A proposed European tax on financial transactions may cost British-based companies as much as 22 billion euros ($29 billion) a year and cause 4500 job losses whether the UK agrees to it or not, according to Ernst & Young LLP's ITEM
A Salve for a Taxing Moment: The Vodafone Ins...
The two judges did not think that Vodafone's purchase of Hutch's business was done in a manner to avoid taxes. The two judges also said that the shares that gave Vodafone control over Hutch's telecom business in India were registered outside the
Taxes
What is tax?
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (for example, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity. Taxes consist of direct tax or indirect tax, and may be paid in money or as unpaid labourInteresting articles
What You Dont Know About Property Tax Could Be Costing You Thousands of Dollars Each Year!Deciding when to File a Tax Return
Tax Advantages In A Home Business
Tax Lien Certificates and Subsequent Tax Procedures
How Can Hiring Your Kids Help You Save on Income Taxes
101 Tax Savings Ideas, 7th Edition
Investors Avoid These 5 Common Tax Mistakes
Writing Off Vehicles as Tax Deductions